2004 Moskowitz Prize

1
2004 Moskowitz Prize

• Lloyd Kurtz
• Nelson Capital Management
• SRI in the Rockies
• Keystone, Colorado
• October 9, 2004

2
2004 Winning Studies

• Moskowitz Prize Winner
• Orlitzky, Marc, Frank L. Schmidt, and Sara L.
  Rynes. "Corporate social and financial
  performance A meta-analysis." Organization
  Studies, 24, 2003.
• Honorable Mention
• Bollen, Nicolas P.B. and Mark A. Cohen. "Mutual
  Fund Attributes and Investor Behavior." Working
  Paper, May 24, 2004.

3
Orlitzkys Meta-Analysis

• Summary of Key Findings
• Orlitzkys Hypotheses
• The Literature
• Meta-Analysis
• Detailed Results

4
Summary of Key Findings

• The corporate social responsibility (CSR)
  literature is more meaningful and coherent than
  most researchers realize.
• Statistically significant relationship between
  CSR and corporate financial performance (CFP).
• These relationships are very unlikely to be
  spurious or caused by publication effects.

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Orlitzkys Hypotheses

• There will be a statistically significant
  relationship between CSR and CFP.
• The two factors will mutually reinforce one
  another.
• The correlation will be shown to be due to
• Improved managerial competency
• Improved corporate reputation
• Much of the variance in studies will be due to
• Sampling or measurement error
• Different data sources

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The LiteratureNumbers in parentheses show of
Moskowitz Prizes and Honorable Mentions.
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What is Meta-Analysis?

• Complex statistical technique.
• Goal Make sense out of nonsense.
• Aggregates many studies.
• Widely used in medical research.
• Use in management/financial research is new.
• Such after-the-fact, or retrospective, analysis
  falls pretty low on the scale of scientific
  reliability. But sometimes it provides good clues
  about where problem areas may lie.
• - Time magazine, 9/3/01

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Meta Analysis and Vioxx
9
Confirmed Serious CV Thrombotic Events Observed
in VIGOR
Source FDA Advisory Committee Presentation,
2/8/01 www.fda.gov/ohrms/dockets/ac/01/slides/3677
s2_05_li.PPT
50 mg
10
Meta-Analysis of COX-2s in 2001

• The annualized myocardial infarction rates for
  COX-2 inhibitors in both VIGOR and CLASS were
  significantly higher than that in the placebo
  group of a recent meta-analysis of 23,407
  patients in primary prevention trials (0.52)
  0.74 with rofecoxib (P .04 compared with the
  placebo group of the meta-analysis) and 0.80
  with celecoxib (P .02 compared with the placebo
  group of the meta-analysis). The available data
  raise a cautionary flag about the risk of
  cardiovascular events with COX-2 inhibitors.
• Source Journal of the American Medical
  Association. 286(8)954-9, 2001 Aug 22-29.
• (Mercks own meta-analysis did not show this
  effect.)

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Final Warning

• In an FDA-funded study by Kaiser Permanente
  heart attack rates tripled for patients taking
  Vioxx in doses higher than 25 milligrams per day,
  according to the study. Lower doses of the drug
  also increased the risk of a heart attack, but
  not significantly so, the study indicated. Merck
  defended the safety of its 2.5-billion-a-year
  drug and questioned the study."
• Source Reuters, 8/27/04

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The End

• Merck . Co., Inc. today announced a voluntary
  worldwide withdrawal of VIOXX (rofecoxib), its
  arthritis and acute pain medication.  The
  company's decision, which is effective
  immediately, is based on new, three-year data
  from a prospective, randomized,
  placebo-controlled clinical trial...
• Source Company press release, 9/30/04

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Bringing Meta Analysis to CSR

• Large body of quantitative work
• Controversy over
• Definitions of key variables
• Methodology
• McWilliams and Siegel Misuse of event studies
• Interpretation of results
• Griffin and Mahon 25 years of incomparable
  research
• Margolis and Walsh Research is generally weak,
  but see positive relationship
• Despite the intensity of study directed at it,
  the relationship between CSP and corporate
  financial performance (CFP) remains in dispute.
  Barnett and Salomon, 2003

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The Results Hypothesis 1

• Hypothesis 1 There will be a statistically
  significant relationship between CSR and CFP.
• Supported
• CSR explains 24 of the variance in CFP.
• File Drawer Analysis 1,037

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The Results Hypothesis 2

• Hypothesis 2 The two factors will mutually
  reinforce one another.
• Supported
• By using time lags, Orlitzky finds that CFP is a
  predictor of future CSR.
• But CSR also predicts CFP.
• Taken together, these findings suggest a
  virtuous cycle with quick cycle times or
  concurrent bidirectionality.

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The Results Hypothesis 3

• Hypothesis 3 The correlation will be shown to
  be due to
• Improved managerial competency
• Improved corporate reputation
• Supported
• Both internal (competency) and external
  (reputation) measures of CSR predicted CFP.
• Of the two, the reputation effect was stronger.

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The Results Hypothesis 4

• Hypothesis 4 Much of the variance in studies
  will be due to
• Sampling or measurement error
• Different data sources
• Supported
• Sampling and measurement issues accounted for 24
  of the variance across studies.
• Reputational measures were better predictors of
  CPF than social audits (e.g., KLD ratings).
• Impact of CSR on CFP was stronger with accounting
  measures than market measures.

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Contacting the Authors

• Moskowitz Prize Winner
• Dr. Mark Orlitzky
• Sr. Lecturer
• The University of Auckland Business School
• Commerce C Building
• 18, Symonds Street
• Auckland, New Zealand
• m.orlitzky_at_auckland.ac.nz
• Honorable Mention
• Nicholas Bollen
• Vanderbilt Owen Graduate School of Management
• 401 21st Avenue South
• Nashville, TN 37203
• nick.bollen_at_owen.vanderbilt.edu

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Further Information

• http//www.sristudies.org

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Citations

• Barnett, Michael, and Robert Salomon. Throwing
  a Curve at Socially Responsible Investing
  Research A New Pitch at an Old Debate.
  Organization Environment, September 2003.
• Bollen, Nicolas P.B. and Mark A. Cohen. "Mutual
  Fund Attributes and Investor Behavior." Working
  Paper, May 24, 2004.
• Griffin and Mahon. "The Corporate Social
  Performance and Corporate Financial Performance
  Debate Twenty-Five Years of Incomparable
  Research." Business Society, March 1997.
• Margolis, Joshua, and James Walsh. People and
  Profits? The Search for a Link Between a
  Company's Social and Financial Performance. Lea
  Publishing, 2001
• McWilliams, Abagail, and Donald Siegel. "Event
  Studies in Management Research Theoretical and
  Empirical Issues." Academy of Management Journal,
  1999.
• Orlitzky, Marc, Frank L. Schmidt, and Sara L.
  Rynes. "Corporate social and financial
  performance A meta-analysis." Organization
  Studies, 24, 2003.